Slammed 25% Continental Seeds and Chemicals Limited (NSE:CONTI) Screens Well Here But There Might Be A Catch

Explore Continental Seeds and Chemicals's Fair Values from the Community and select yours

Continental Seeds and Chemicals Limited (NSE:CONTI) shares have had a horrible month, losing 25% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 66% loss during that time.

Following the heavy fall in price, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 28x, you may consider Continental Seeds and Chemicals as an attractive investment with its 14.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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With earnings growth that's exceedingly strong of late, Continental Seeds and Chemicals has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Continental Seeds and Chemicals

Although there are no analyst estimates available for Continental Seeds and Chemicals, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Continental Seeds and Chemicals?

There's an inherent assumption that a company should underperform the market for P/E ratios like Continental Seeds and Chemicals' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 116%. The latest three year period has also seen an excellent 668% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Continental Seeds and Chemicals is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Continental Seeds and Chemicals' P/E

Continental Seeds and Chemicals' P/E has taken a tumble along with its share price. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Continental Seeds and Chemicals currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 4 warning signs for Continental Seeds and Chemicals (2 shouldn't be ignored!) that we have uncovered.

Of course, you might also be able to find a better stock than Continental Seeds and Chemicals. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.